Stockland Group's Financial Reporting: A Critical Analysis Report

This report provides a comprehensive analysis of Stockland Group's financial performance, comparing it with Investa and evaluating its adherence to Australian Accounting Standards Board (AASB) guidelines and conceptual framework. It examines key financial indicators such as dividend payouts, share prices, contingent liabilities, and depreciation, comparing the fiscal years 2016 and 2017. The report also assesses the effectiveness of Stockland's remuneration policies and general-purpose financial reporting. Ultimately, it makes an investment recommendation based on the company's financial health and performance relative to its competitors within the Australian Securities Exchange (ASX).

Running Head: ACCOUNTING THEORY & CONTEMPORARY ISSUES
ACCOUNTING THEORY & CONTEMPORARY ISSUES
Name of the Student
Name of the University
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Executive Summary:
Comparison of the financial performances of two companies presents the different ways, of
gauging their potential in providing returns to their shareholders, creditworthiness and many
other essential characteristics of the organisation concerned. This comparison might arise
from the dividend paid out to the shareholders, share prices of the companies or the other
assets, liabilities and expenses of the organisation concerned. With this in mind, this report
has been prepared with the objective of gauging the performance of one of Australia’s
reputed real estate builders in the form of Stockland Group. Its performances across various
parameters have been judged and compared , along with the highlight of the importance of
conceptual framework, general purpose financial statement, remuneration policies etc.

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Table of Contents
Introduction:...............................................................................................................................2
Company’s Profile:....................................................................................................................2
Conceptual Framework:.............................................................................................................3
General Purpose Financial Reporting:.......................................................................................5
Remuneration Report:................................................................................................................5
Critical Analysis with FY16:.....................................................................................................7
Comparison with Investa:..........................................................................................................9
Investment Decision.................................................................................................................10
Conclusion:..............................................................................................................................11
References:...............................................................................................................................12

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Introduction:
Conceptual framework refers to the principles and the different kinds of rules and
regulations which holds a business entity together. It can be defined as a group of principles,
ideas, rules which is basically used for planning or deciding on something. Conceptual
framework helps in ensuring the development of the accounting standards and in the
preparation of the different financial statements namely the balance sheet, profit and loss
accounts and cash flow statement of the business organisation. In the case of the sub-
continent of Australia, Australian Accounting Standards Board (AASB), issues all the
necessary and relevant principles and rules for all the business entities operating there. All the
companies which have been registered under the Australian Securities exchange, are required
to comply with each and every [provision of the AASB. This is done for ensuring that all the
financial statements are prepared in a true and fair manner, without any scope of material
misstatement.
This report aims to explain the background of the company, the general purpose financial
reporting. In association with this, critical analysis has also been presented on various topic
consisting of depreciation, share price, dividend, and contingent liability.
Company’s Profile:
Stockland is one of the largest and one of the most diversified real estate groups in
Australia, with a staggering $18.2 billion of real estate assets. It is also the largest community
creator of Australia, which covers a whole range of housing solutions (stockland.com.au
2018). The group owns, manages, and develops retail town centres, workplace as well as
logistics assets. In addition to this the group also focuses on residential and retirement living
communities.

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The company was originally founded by Albert Scheinberg and Ervin Graf, in the year 1952,
with the aim of making a genuine contribution in the development of great cities in the island
country of Australia. Since then the vision of the company has remained to be a great
Australian real estate company, which makes valuable contribution towards the Australian
communities and cities.
It is listed in the Australian Securities Exchange. Some of the summarised results of the
company’s recent financial happenings have been presented in a diagrammatic manner
below:
(Source: Asx.com.au, 2018)
Conceptual Framework:
Conceptual framework is the supervisory principle which helps an organisation in
achieving its objectives, purposes and for general purpose financial reporting. It is a vital tool

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which assists the International Accounting Standard Boards (IASB) in developing consistent
concepts which are standardised in nature. The framework helps in identifying the purpose
and objective of the financial reporting and also helps in completing it.
The preparation of the relevant financial statements and other reports of Stockland is based
on the following, declaration provided by its directors:
(Source: Stockland.com.au, 2018)
Conceptual framework helps and assists AASB in promoting and maintaining the integrity of
the financial statements prepared by the business entities by adhering to each and every
accounting standards and provisions, along with all the relevant provisions, while preparing
the financial statements. It can also be viewed from the lenses of Generally Accepted

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Accounting Principles, as like GAAP it also helps in creating a specific structure for
reviewing both the existing as well as new standards of accounting (Eccles, Krzus and Ribot
2015). It also helps in providing valuable information, which helps in taking crucial decision
relating to the financial and managerial matters of the company. Moreover, the conceptual
framework of the company also helps the different users of the financial statements such as
the other stakeholders such as investors, shareholders, creditors and the other interested
parties in understanding the IASB’s approach towards the development of the different
accounting standards. Auditors also receive much help as it helps them in ensuring whether
the conceptual framework is being followed or not in the case of the preparation of the
financial statements (Francis, Pinnuck and Watanabe 2013).
General Purpose Financial Reporting:
The process of General Purpose Financial Statements helps both the investors as well
as the creditors in taking effective decisions. This general purpose financial reporting is
prepared by the business entity throughout the year and is mainly created with the purpose of
providing information to the shareholders about the decision making procedures (Dragu and
Tiron-Tudor 2013). It also helps in providing information to the various stakeholders of the
organisation such as the creditors and the investors, in providing vital inputs which helps
them in their investment decisions. The GPFR information must be of the highest standard,
and must have all the essential qualities of a fair and just financial statement namely true, fair,
understandable, comparable and verifiable.
Remuneration Report:
The Human resource committee is responsible for all the senior executive
remuneration policies to the board for its approval and it is their responsibility of reviewing
the company’s remuneration policies year after year. It is their main objective of ensuring

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that the wages, salaries, perks and privileges remain competitive for businesses of similar
sizes, mix and policies. The key highlights of the remuneration policies of the group for the
fiscal year 2017 are as follows:
 Financial summary: Stock land delivered yet again in the fiscal year of 2017 by
reporting a staggering $802 million Fund from operations. There was also a 7.4%
increase from the previous financial year in the fund from operation per security of
33.4 cps (Stocklandcom.au 2018). Total shareholder return of the company for the
year ended 30th June, 17’ was 7.1%.
 Fixed Pay: In the fiscal year of 2017, there was no increase in the fixed pay for the
Managing Director as it was seen that the current level of fixed pay was considered
fitting. The fixed pay for two senior executives was increased for reflecting an
increase in the scope of their responsibilities and market relativities (Elshandidy,
Fraser and Hussainey 2013). The average increase infixed pay for senior executives
was less than 2%. It is expected that this approach of remuneration would continue in
the fiscal year of 2018, for majority of the executives of the company.
 Annual STI: There has been an increase in the short term incentives of the Managing
Directors and the other senior executives for the company. This has been a result of
the sturdy business, better financial and organisational performance, as against the
Corporate Balanced Scoreboard, as a result of which the Managing Director and the
senior executives were rewarded with Short term incentives (Board 2015). These
incentives took the form of the Stockland securities and shares, which are vested for
future period of time, subject to the continuation of the services by the executives in
Stock land.
 LTI vesting for the year: Stockland had delivered a strong financial performance
over the last three years ending on 30th June, 2017. Having delivered a Compound

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Average Growth in underlying EPS of 6.5%, which was above the 6.25 % target
which was set with regards to the maximum vesting. Due to this, the entire EPS
component of the FY15 LTI was vested (Asx.com.au. 2018).
Critical Analysis with FY16:
 Dividend: As per the AASB 101 paragraph 13(a), 107 and 137, some important
provisions regarding the treatment of the dividends have been mentioned. Para 13 (a),
mentions that the business entities are entitled to report their dividend policies and
Para 107, makes it compulsory for the business entities to disclose the amount of
dividends in the financial statements of the company. Dividends are the contribution
made to the shareholders of the company in lieu of their investments. It is what they
receive in exchange for their investment (Cristiano et al 2014). Therefore it is very
important to disclose correct amount of dividends. The dividend scenario for both the
fiscal years of 2016 and 17 are as follows:
It can be seen that there have been a significant increase in between the two fiscal
years of 16 and 17.
 Share Price: One of the most effective indicators of the financial health of any
company is its share price. It is the heart beat of the financial goodwill of any
company. For Stockland, it is no exception. Some of the instances of the past four
years of the company’s share prices have been provided below:

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It could be seen that there has been a slight dip from the share prices of FY 2016 to
FY 2017.
 Contingent Liability: The contingent liability refers to the potential kind of liability
which might occur depending on the outcome of the happening of a future incident or
event. Such an event is recorded only when any kind of such potential event is
recorded and when the amount of the liability could be reasonable and accurately
predicted. Only in such cases, they are recorded in the books of accounts. AASB 137
strictly mentions that all the details regarding the contingent liabilities of the business
entities of the ASX must be properly and fairly presented in the financial statements
of the company (Board 2015). For Stockland, the contingent liabilities mainly
consisted of bank guarantees and insurance bonds. Some of the details have been
provided below:
 Depreciation: Depreciation refers to the reduction in the value of any asset due to
regular wear and tear. It is essential to account for depreciation as it helps in making
clear, true and fair financial statements. According to AASB 116, depreciation must

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be accounted for by the business entities for presenting a true and fair statement of
affairs (Afzal and Lim 2013). For Stockland, depreciation for the financial year 2016
was $13 million and for 2017 was $14 million.
Comparison with Investa:
Investa is one of Australia’s largest, and most recognised commercial real estate
companies. It owns, develops, and manages office buildings across Australia’s major
districts. The company has been in operation for a period of 18 years, has 200 plus team
across Australia and has $11 billion as assets management (Investa.com.au. 2018). It is thus,
one of the direct rivals of Stockland. The comparison with Stockland is as follows:
 Share Price: The share price of both the companies for the past 4 years has been
provided below, in a graphical representation. Here it can be seen that Stockland has
been pretty fluctuating whereas, Investa has remained within a stable range.
Stockland:
Investa:

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 Dividend: Similarly the dividend paid by both the companies in the last four years
has been provided below in a graphical presentation. The company with the higher
dividend amount is the best one to invest into, as it would provide more return than
the other one. The dividend amount is provided below:
The dividend amount of Stockland for the last 4 years is as follows:
In this case, it can be seen that Investa is in a better position as the latest dividend amount
provided by the company to its shareholders is 0.26, which is more than 0.20 of Stockland.
Investment Decision:
In this case, after careful scrutiny and consideration of all the relevant financial
parameters, it could be concluded that investing the $10,000, would bring in better returns, if
it is invested in Investa, as it would help in providing better dividend returns. Investa has